Sun posts loss for quarter / President reshuffles management team

Sun Microsystems posted a third-quarter loss of $760 million on Thursday, highlighting the server giant's wobbly future despite recent dramatic changes in the way it does business.

Meanwhile, newly appointed Sun President Jonathan Schwartz announced a shakeup in the company's management team, including the departure of two key executives.

The company's substantial loss for the quarter that ended March 28, which translated to 23 cents per share, was based on revenue of $2.65 billion. That compared with a profit of $4 million (break even) on revenue of $2.79 billion in the same period last year.

Minus one-time charges, the server-maker posted a loss of $260 million (8 cents per share), compared with a profit of $11 million (break even) in the same quarter last year. Wall Street analysts had projected the company would lose only 7 cents per share.

Sun shares dropped about 14 cents to $4.42 in regular trading, and dipped another 12 cents to $4.30 in after-hours trading.

Chief Financial Officer Steve McGowan said the company's earnings have typically declined in the fiscal third quarter.

But analysts said the company's performance pointed to big hurdles ahead for Sun.

"It's quite a loss," said analyst Steve Allen of Sierra Tech Research. "I think it's testimony that they waited too long in shifting their strategy."

That shift was underscored earlier this month when Sun reached a settlement with Microsoft in which the Redmond, Wash., company would pay it nearly $2 billion. Sun also announced the appointment of Schwartz to the position of president, the No. 2 post.

Sun said Thursday that two key executives, Mark Tolliver, chief marketing and strategy officer, and Neil Knox, executive vice president for volume systems products, have left to pursue other interests.

Schwartz, who was formerly the executive vice president for software, also announced the consolidation of Sun's microprocessors, enterprise systems and SPARC-based volume systems under David Yen, executive vice president of Throughput Systems Group.

Sun products based on Intel and AMD processors were united under John Fowler, acting executive vice president of network systems.

Analyst Jean Bozman of International Data Corp. noted that Thursday's changes, along with Schwartz's appointment on April 2, show that the company is "betting on a new management team."

The changes fit the company's bid to transform itself from a hardware company to a broader-based firm focused on selling computer servers, software and services.

"We've known that Sun had to recognize that there were a lot of reasons why it wasn't profitable, and one is the decline in hardware prices," said Bozman, who doesn't own Sun stock. "That was industrywide, although it affected Sun very strongly. So they had to change the product mix."

Schwartz has been pushing new software pricing in which companies pay $100 per employee per year for access to Sun's Java-based products.

Chief Executive Officer Scott McNealy said the company is working to develop a broad subscription base that could bring in steady revenue.

But Tom Murphy of the Meta Group said the company faces a tough road. "You have to ask the question: How long does it take for that to kick into gear?" he said. "That's a different kind of business ... They have some good thoughts, but it's a steep mountain." Murphy does not own Sun stock.

Allen pointed out that Sun has begun addressing its major problems.

"The positives are that they have admitted they have a problem, and they have focused on redeploying its resources," said Allen, who doesn't own shares of Sun.